Barring the Door

Attorney Josh Lobe talks foreclosures and fairness

You won’t see Joshua B. Lobe in a courtroom very often. But he’s practicing as much law as any attorney in Vermont these days.

Lobe’s specialty is the foreclosure proceeding. He and his partner, Corey Fortin, represent banks, lenders and loan-servicing firms in litigation against homeowners who have defaulted on their mortgages. One recent morning finds Lobe in his firm’s suite on the third floor of a South Burlington office building. Dressed in a blue-striped Oxford shirt, faded jeans and black shoes, he sits at his desk, which has been cleared of everything but a PC and a stapler. A fax machine occupies a table in the corner below a framed poster of Baltimore, where Lobe grew up.

Lobe is circumspect about the size of his current caseload, beyond repeating the well-known fact that foreclosure filings in Vermont are at unprecedented levels. In Chittenden County, where Lobe and Fortin do most of their work, filings were up 74 percent through the first nine months of 2008. According to court records, Lobe is the attorney of record in dozens of the more than 200 foreclosure cases initiated in Chittenden County Superior Court this year.

Lobe, who is in his late forties, used to handle all kinds of legal work. In the early 1990s, he decided his skills could be best applied in a high-volume specialty such as foreclosure, where the legal process is fairly routine and appearances before the bench are rarely required. “I’m pretty good at managing a heavy caseload,” he says. “But as far as hitting the law books and writing a 75-page Supreme Court brief, that’s just not my thing.

“I did some trial work,” Lobe adds, “but, frankly, it was a little bit too stressful.”

Foreclosure used to be rare in Vermont. Lobe and others are quick to point out that the state has been lucky compared with others such as Florida, Nevada and California. In those states, a boom of speculative home building ratcheted up the demand for mortgages, which inevitably led to a steep decline in lenders’ standards. But, while borrowers in other states were ill-advisedly agreeing to high-risk, adjustable-rate mortgages, Vermont lenders were in a position to exercise some restraint. Consequently, of the 62,000 home loans in Vermont, subprime mortgages only account for about 2000.

In Lobe’s experience, most Vermont foreclosures are triggered by a single event — job loss, divorce, illness — that causes a homeowner to miss a mortgage payment. Many homeowners recover quickly. Others don’t, and after 30 days they receive a notice of default from the lender.

A mortgage is usually 90 days in arrears when Lobe is brought into a case. He conducts most of his business on the phone, speaking to about a dozen people a day who are in the process of losing their homes. They invariably have no legal representation. And in a world where mortgages are bought and sold as securities, the business entity that is actually calling in the loan can change regularly.

“Unfortunately, it’s challenging for these people to call the bank and get somebody on the phone. They’re talking to different people all the time,” he says. “But they see my phone number on the court papers, and they call me.”

Homeowners who reach out to Lobe might be surprised at how willing he is to reach an accommodation. He’ll first offer them a chance to “cure” the default through a reinstatement — a single lump sum to cover the missed payments. Some people borrow from family or cash in a 401(k) to catch up.

Since April, Lobe has been referring some delinquent borrowers to the Vermont Department of Banking, Insurance, Securities & Health Care Administration, or BISHCA, which now offers foreclosure counseling to troubled homeowners (see sidebar). Sometimes, with BISHCA’s help, the delinquency is “worked out,” either by setting new mortgage terms or simply having the delinquent payments put on the back end of the loan.

But, as housing prices fall, that option isn’t always available. Increasingly, borrowers are finding themselves “upside down” — that is, owing more money on the mortgage than the house is worth.

In good economic times, many homeowners refinanced their mortgages or borrowed against their equity. That became a problem in 2006, when interest rates began to rise, housing prices declined, and refinancing a mortgage got difficult — and more risky. “In a rising market, you still have $30,000 equity in your house, so there’s some way out of it,” Lobe says. “But if you have no equity in your house, it’s a lot more likely you won’t be able to recover from that one missed payment.”

In Vermont, homeowners have at least seven months to save their homes before the proceeding runs its course and a judge approves sale of the house at auction. Lobe goes to some pains to explain that he takes no pleasure in helping lenders repossess Vermonters’ homes. While he emphasizes that his first duty is to represent the lender, he says he sometimes ends up advocating for the homeowners out of a sense of fairness.

Eric and Leona Ross of Huntington struggled with their mortgage payments for two years before their lender, Option One Mortgage Trust, initiated foreclosure proceedings in 2006. The couple managed to pull themselves out of trouble, but by May 2008, they were in default again. After several months, they were able to scrape together a $7000 certified check to send to Option One to save their home.

“We got it to them when we were supposed to,” Leona recalls, “but they lost the check. We had all the receipts, a letter from the bank, the signed mail receipt.”

Eric Ross says Lobe was on vacation at the time, but Fortin, his partner, managed to delay the foreclosure until Option One located the Rosses’ check. The case was dismissed on October 13.

“[Fortin] said, ‘We’re not going to proceed anymore with this,’” Eric says. “That girl was the one who got them to find the check.”

As Lobe sees it, no one really wins in a foreclosure case. It creates heartache, not to mention a glut of houses that often fall into disrepair, hurting everyone’s real estate values. Lobe foresees no easy way out of the nation’s foreclosure crisis, especially in communities ravaged by “upside-down” loans. In those places, borrowers have no option but to walk away from their homes.

But for most other homeowners in arrears, there’s at least some glimmer of hope, and Lobe likes to see himself as the person who can provide it. Three years ago, only a small percentage of homeowners were able to avoid foreclosure once the process began, he says. Today, 25 to 30 percent of foreclosure filings end up being dismissed because the lender and borrower were able to come to terms.

“I don’t see doing a good job as making sure I get the foreclosure done as quickly as possible and somebody kicked out of their house,” Lobe says. “If there’s some way that I can get the loan out of foreclosure, I’m doing a good service for my client and a good service for the homeowner.”

State Program Helps Homeowners Avoid Foreclosure

Homeowners who fall behind on their mortgage payments often fail to take action that might forestall foreclosure. According to Freddie Mac, the federally subsidized lender, more than half the borrowers who lose their homes never respond to lenders’ calls or letters.

Last spring, as the number of foreclosures mounted in Vermont, the state Department of Banking, Insurance, Securities & Health Care Administration, or BISHCA, began reaching out to homeowners in trouble to encourage them to work with their lenders.

So far, the state’s Mortgage Assistance Program has received calls from more than 240 homeowners. According to BISHCA Commissioner Paulette J. Thabault, in about a quarter of those cases, counselors at the state’s five regional Homeownership Centers were able to negotiate new lending terms to save homes headed for foreclosure.

Cathy Semans of the Homeownership Center of Southeastern Vermont, which is run by the Rockingham Land Trust, says the goal is to reach homeowners while they still have options.

“We can certainly do more for somebody who comes in three months behind than somebody who has already gone through the court process,” she says.

Counselors meet with homeowners individually to study their finances and figure out what caused the default in the first place, Semans says. The potential remedies vary. Homeowners who have fallen behind in their mortgages because of a temporary loss of income may be eligible for a loan modification. In a few cases, lenders have agreed to reduce the principle on a mortgage by as much as $50,000 to make the loan more affordable.

When foreclosure is inevitable, counselors have been able to buy homeowners enough time to sell the house on their own.

Semans says counselors “have no idea” what new terms, if any, a lender will agree to. “It’s at the whim of the lender,” she says, “which is why the banking commission has been so important. When you have a regulator saying we’re going to take a look at this loan, it’s really significant.”

At least one realtor in Chittenden County wants to help clients avoid foreclosure. Coldwell Banker Hickok & Boardman is in the early stages of creating an online resource center for homeowners facing default. Sybil Chicoine, the company’s marketing director, says the site will offer tips on how to avoid foreclosure along with a list of agencies that can help, such as BISHCA and the U.S. Department of Housing and Urban Development, which has a foreclosure-prevention program called Hope Now for Homeowners.

“It’s just education and awareness,” Chicoine says. “We’re definitely in the business of assisting people in making wise investment choices.”

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